Last week Tony Blair launched UKOnline, the Government's strategy
to put every citizen on the Internet and make Britain the best
place for e-commerce. We will examine the impact on small
businesses, telecoms and broadcasting regulation, Whitehall and the
UK economy as a whole
For once, it was not all spin. When Tony Blair took the podium
last week to outline the Government's e-strategy he had some
impressive figures to hand, writes Paul Mason.
The number of UK households on the Internet has grown from 13%
to 25% in one year; one-third of the workforce now works in "clicks
and mortar" companies; e-commerce turnover has quadrupled; 450,000
small businesses are trading online; and the IT sector's
contribution to economic growth is significant.
The UK, Blair insisted, is leading Europe on e-commerce. It
offers the biggest e-marketplace in Europe and has more people
online than any other EU country, according to the UK Online
report.
For Blair, the success of the knowledge economy is not just
icing on the cake of an economic boom: it is central to economic
policy. At the heart of his strategy is a rejection of the "new
economy" hype - if that means a separate, booming, dotcom sector
surviving on zero profits.
"What is happening is no dotcom fad that will come and go," said
Blair. "It is a profound economic revolutionÉ There is no new
economy. There is one economy, all of it being transformed by
information technology."
At the Loughborough launch of UK Online, Blair told industry
leaders, "We cannot divide the economy into old and new sectors.
What matters is whether companies innovate and deploy knowledge
effectively, whether they master change or suffer it." And he
explicitly linked the failure of UK businesses to innovate in the
1950s and 1960s with "40 years of relative economic decline".
Few doubt the prime minister's commitment to the e-revolution -
the question is whether the Government's action tick-list can
deliver the goods.
Peter Sommer, visiting research fellow at the London School of
Economics and an authority on the Internet, said, "The whole tone
of Blair's presentation was 'we've met these targets and let's go
for the next lot' - rather like a sales team. The targets are all
well and good but after a certain point it is about difficult
political choices and we need more debate about that."
Sommer said that he had hoped Alex Allan, the e-envoy, would
drive that debate. But Allan announced his resignation, for
personal reasons, one week before the UK Online launch.
A panel of e-commerce experts, writing for Computer
Weekly, delivered a negative verdict on Allan's achievements,
and cited the failure to build "trust" in e-commerce as the key
problem.
Whoever replaces Allan will face the same problem as he did: the
Government has a clear e-vision but has consistently put tax and
law enforcement above business empowerment.
Behind the impressive top-line figures on Internet access there
are a series of barriers to e-commerce that the Government seems
unwilling to address, namely obstructive legislation on tax and
cyber-tapping, the high cost of Internet access, and the IT skills
shortage.
Industry complaints
E-government minister Ian McCartney has the task of removing 70%
of regulatory and legal barriers to online trade by the end of
2001, and 100% by 2002. But, for many business leaders, the most
important barriers are the ones the Government has recently erected
- the RIP Act, the IR35 tax regulation on the self-employed, and
uncapped national insurance contributions on share options.
Blair dismissed concerns that the RIP Act placed an unnecessary
burden on Internet service providers and that it was frightening
off global corporations from the UK.
"A lot of the concerns expressed over RIP are hugely alarmist
over what the Government was intending to do with it, and I think
we have taken care of most of the difficulties that people have,"
he said.
On IR35 and share options, the report itself was keen to
demonstrate that the Government is "listening to industry". IT
contractors have complained loudly about the new tax rules, and
there is anecdotal evidence of a brain drain beginning in some
sectors. However, Blair is offering only to "monitor the effects of
IR35 including its effects on the labour market".
Many start-up companies have complained that national insurance
contributions on capital gains from share options are
unpredictable, due to the fact that values may rise dramatically.
The Government responded with a deal which will allow tax relief
where an employee accepts liability - but only where the shares are
held for four years.
Brett Mankey, chief exective of application service provider
Hosteu, said the failure to properly address these tax issues was
one of the biggest disappointments about the UK Online report. With
many ASP start-ups looking to go public about 18 months after
turning in a profit, the four-year timescale is too long, according
to Mankey. "In order to foster a growth environment you have to
retain and attract the best people - it is hard to do that through
share options if they can't get value out of the company," he
said.
Telecoms trouble
Blair claimed that the UK is the "best in the world" for
off-peak Internet access prices - a claim that was met with
cynicism by users for the simple reason that it is peak rates that
matter. Add to this the tortuous process of removing BT's monopoly
over the "local loop", and telecoms watchdog Oftel's recent
admission that UK businesses pay too much for leased lines, and a
picture emerges of a monopolised fixed-wire telecoms sector where
pricing is an issue from the smallest business to the biggest
corporation.
Blair's "best in the world" claim was based on a survey by the
Organisation for Economic Co-operation and Development (OECD) in
March 2000. The survey measured the "best available offer at the
time" over the public switched telephone network (PSTN), but
admitted that many of the UK's unmetered access offers had yet to
be rolled out. The same survey showed that, for peak rate access,
UK users pay way above the OECD average.
Blair countered, "UK peak prices have fallen a further 30% to
40% since then, and the OECD expects its next comparisons to show
the UK shooting up the league table. On high-speed, broadband
connections it is still early days, but Oftel's benchmarking shows
we're up with the leaders."
The problem is that many of the promises on unmetered PSTN
services have not been fulfilled. The May 2000 Friaco Directive,
which ordered BT to let rivals provide access at a flat rate over
its network, was hailed as the dawn of cut-price unmetered access.
But Alta Vista has since withdrawn its unmetered offering, and
Freeserve's £10-a-month unmetered service is facing very heavy
demand.
Many users of unmetered services complain of poor response
times. And most remaining providers are limiting the number of
users. In short, it is hard to run even the smallest of businesses
over unmetered PSTN Internet access.
This would not be such a great problem if digital subscriber
line (DSL) services in the UK were as advanced as those in the US.
But the roll-out is limited to one-third of potential users, and
true competition in the DSL market will not take place until later
this year.
David Harrington, director general of the Telecommunications
Managers Association (TMA), was critical of Oftel's progress
towards unbundling the local loop. "The EU said that unbundling has
to take place by 31 December 2000, and Oftel is struggling to
achieve that by July 2001. All we are going to see by the end of
this year is a low level of unbundling, so the number of users that
will be able to enjoy ADSL will be fairly small - but just enough
for the UK to be able to say to the EU that it is complying," he
said.
"There are 6,000 local exchanges in the UK, and BT has
identified some 400 to 500 as being suitable for unbundling. It is
a fairly small number but just enough to claim compliance with EU
regulations," said Harrington.
"There is a whole raft of logjams still to be undone, " he
added, "one of which is that there is no formal contact between BT
and the ISPs yet. It is in BT's strategic interest to delay as long
as it can, the longer the delay, the later the cannibalisation of
BT's current market.
"BT will legitimately dig its heels in and it is up to Oftel to
say what is a legitimate concern and what is not. Oftel certainly
sees what the target is, but whether it can do it, and whether it
has the necessary resources to enable it to move quickly, is
another matter."
At the high end of broadband business access, the market for
leased lines is not properly competitive, according to an Oftel
report published last month.
Oftel's survey showed that UK businesses pay more than they
would if the market was truly competitive. In addition, while
prices have fallen in Europe, UK price reductions have moved much
more slowly. Oftel is looking at setting wholesale bandwidth prices
in order to encourage competition in the retail bandwidth
sector.
The OECD said, "For consumers and small businesses, the most
significant costs for engaging in electronic commerce are the
prices of local communication access." The problem is that, from
dial-up Internet access through to 2Mbyte leased lines, access
still costs too much.
The skills shortage
UK Online promises a strategy to "make the UK the number one
country for the supply of high-level ITEC skills". In the context
of a growing skills shortage in the Internet sector, that is a bold
promise - especially when compared to the detail of the strategy
itself.
Labour's skills strategy clearly starts from the bottom up.
Because it has eschewed the idea of a compulsory training levy - on
the construction industry model - Labour steers clear of any
centrally-managed or centrally-funded solution to the short-term
skills gap. Instead, when Labour thinks "Information and
communication technology skills" it thinks of computers in primary
schools and training for the unemployed.
UK Online contains an impressive list of measures to overcome
technophobia and techno-illiteracy among marginalised sectors of
the community. These include free ICT "taster" courses for the
unemployed and 80% discounts for computer literacy training for
adult students.
The Government will invest £84m in the University for Industry
(UFi) scheme, which aims to have 2.5 million people registered for
online courses by 2003.
But out of the £3.8m it promised to put behind UK Online
strategy, just £8m is earmarked to drive forward the ITEC skills
strategy - and this over three years. The strategy includes:
- A business-led campaign to improve the image of IT among women
and children
- A work-placement programme for electronics students
- Boosting the profile of electronics in schools
- Better labour market information from the Department for
Education and Employment
- Reducing the number of IT awards from 800 to 80 in order to
clarify their value.
It is hard to see how this combination of measures will address
the shortage of high-level skills, even in the medium term, let
alone make the UK the "number one" source of IT skilled
workers.
Internet for all?
One theme pervades Blair's pronouncements on the Internet - that
it is for everybody. Indeed, earlier this year he likened it to
electricity - a must-have service that is basic to inclusion in
society. And many of the commitments in UK Online reflect Blair's
determination to meet this goal. They include:
- A network of 600 UK Online centres which provide Internet
access and basic IT skills
- All libraries to provide Internet access by 2002
- A £35m programme to put the Web in post offices
- An ambitious pilot scheme to give all households and public
institutions free broadband access in selected disadvantaged
communities
- 100,000 recycled PCs for low-income families.
But the London School of Economics' Sommer said, "I would have
preferred a more reflective approach. As e-commerce becomes
successful, we will have to make many more difficult choices - on
the digital divide, for example - and the whole country needs to
take part in that debate.
"One hundred thousand PCs for impoverished people is nowhere
near enough. The paradox is that e-commerce relies on the free
market. But to a full-blooded capitalist the bottom 25% of society
is, to put it bluntly, a nuisance. These people have no computers,
no bank accounts," Sommer said.
"If you want to overcome the digital divide, society has got to
find some mechanism for doing that - UK Online makes gestures
toward it, but offers nowhere near enough."
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